The 101 on Long Term Care
On the long list of unpleasant things to think about, the time in your life when you might need assistance doing even the most basic of tasks is right near the top. That said, ignoring this reality could leave you unprepared for such a moment — and if and when that moment arrives, you’ll need long-term care to help you through it. More than half of adults turning age 65 today will develop a disability serious enough to require long-term care, according to the U.S. Department of Health and Human Services. The average lifetime cost of that care is $138,000.
If you need long-term home care or assistance from a nursing facility, you can’t count on health insurance or Medicare to pick up the tab because they don’t cover most long-term care expenses. So how do you pay for the potentially high cost of personal care without raiding your retirement savings, relying on unpaid care from your family, or burdening your family with the costs.
Clearly, you need a plan. And that plan can include long-term care insurance.
What is long-term care?
Long-term care is a range of services to help people with what are called the basic activities of daily living:
Using the toilet
Caring for incontinence
Transferring to or from a bed or chair
Long-term home care services also can include help with housework, shopping for groceries, preparing meals, taking medication, managing money and other tasks. They can be provided at home by friends, family or a home health aide. Or long-term personal care services can be provided in the community through an adult day-care center, assisted living facility or skilled nursing home. (As we are all learning these days, of course, nursing homes come with their own risks, including the consequences of grouping a vulnerable population so close together.)
You might need long-term care if you have a disability, chronic health condition or a cognitive impairment such as dementia. Women are more likely than men to need nursing care, and they’re more likely to need care for a longer period — 3.7 years versus 2.2 years, according to Administration on Aging. (This is because women live, on average, longer than men do, and have higher rates of long-term health issues.)
The median annual cost for long-term care can range from $17,900 for adult day-care services to $45,800 for assisted living to $91,300 for skilled nursing care. Because health insurance and Medicare don’t cover long-term care, more than half of people who need this sort of care pay for it out of pocket.
What is long-term care insurance?
Long-term care insurance helps pay for care at home, in an adult day-care center, assisted living facility or a nursing home. Most policies also cover modifications to your home, such as installing a sit-down shower and widening doorways for a wheelchair.
Coverage is triggered when a person can’t perform two of the six daily activities of living or has a cognitive impairment. However, policies typically have a waiting period – or elimination period – before coverage kicks in.
What to consider when buying long-term care insurance
As with life insurance, your age and health will impact the amount you pay for long-term care insurance and your ability to get coverage. That doesn’t mean you need to get a policy while in your 20s or 30s. Most people who get long-term care insurance do so in their 50s. If you’re over 65 when you apply, you’ve got at best a 50/50 chance as to whether you get coverage.
In addition to your health and age, the type and amount of coverage you get will impact your premium. So you need to be familiar with the common features of a policy.
Benefit amount: This reflects the maximum amount the policy will pay out on a daily or monthly basis. A typical plan would pay $3,500 to $5,000 a month in benefits. However, it’s important to get an idea what the cost of care is where you live when deciding the benefit amount you want. Also consider whether you want a policy that will cover some or all of the cost of care. The higher the benefit, the more expensive the policy will be.
Benefit period: This is the maximum number of years a policy will provide benefits. The average is three, and the maximum is eight years.
Benefit maximum: The maximum policy benefit is calculated based on the monthly benefit you want and the number of years you want the benefit to last. So a policy with a $5,000 monthly benefit and a four-year benefit period would pay out a maximum of $240,000.
Shared care: In some cases, a couple (including domestic partners) can get what is called a rider that allows them to share their benefits. For example, if they both had five-year benefit periods, they would have a total of 10 years that could be divided among them however they wanted. If one partner ended up using the entire pool of coverage, the other would be allowed to purchase another two years of coverage without having to go through the underwriting process again.
Elimination period: This is the number of days you must pay for care out of pocket before coverage kicks in. The shorter the elimination period, the higher the premium will be. The typical waiting period is 90 days.
Inflation protection: If you want the value of your policy to keep up with the rising cost of care, you can opt for inflation protection. Typically having at least 3% inflation protection is recommended. Even more would be better, but it will make coverage more expensive.
Reimbursement or indemnity: Most policies will reimburse the policyholder for care expenses that are incurred, up to policy limits. However, some policies pay on an indemnity basis – that is, a fixed cash benefit rather than reimbursement. This option can cost more but can potentially be used to pay a family caregiver.
How much long-term care insurance costs
To get an idea of how much a policy would cost, consider these quotes from a leading carrier provided by Newman Long Term Care. A married couple in standard health and age 55 would pay $358 a month a shared care policy with $4,500 monthly benefit, six years of coverage, a 90-day elimination period and 3% inflation protection.
If they got the same policy at age 60, they would pay $413 a month. At age 70, they would pay almost $650 a month.
How to buy long-term care insurance
Some employers offer long-term care insurance as a workplace benefit. It might be easier to qualify for a group plan than an individual policy because you’ll likely have to answer fewer health questions. However, the choice of policy features might be limited, and you’ll also want to consider if the coverage is portable — can you take it with you when you leave a job?
If you choose to buy coverage on your own, work with an independent long-term care agent who can get quotes for you from several insurance companies.
During the application process, you will have to answer questions about your health but you won’t necessarily have to take a medical exam. If you’re younger, an agent will likely be able to interview you by phone and pull your medical records. If you’re older and have health issues, there will be more underwriting requirements, such as an exam.
How to save money on a policy
The best way to save money on long-term care insurance is to buy a policy when you are younger and in good health.
You’ll also pay less with a shared care policy for a couple than by purchasing separate policies for each. And paying annually rather than monthly can save you up to 7%.
Having a longer elimination period and a smaller monthly benefit can reduce your premium. So consider how much of the cost of care you want covered by insurance versus how much you can afford to pay out of pocket. Also, opting for less inflation protection – say 1% instead of 3% — will save you a lot. But you’ll be taking on more risk with policy benefits that doesn’t grow as much as the rising cost of care.
You might be able to save money if you’re self-employed or a business owner because the cost of long-term care coverage may be deductible as a business expense. And funds in a health savings account can be used to pay for long-term care insurance premiums.
Other ways to pay for long-term care
The most common objection is paying for coverage you might not need. If this is your concern, there are hybrid policies that offer a combination of life insurance and long-term care coverage. If you don’t need long-term care, the policy will pay a death benefit to your beneficiaries when you die.
If you want to self-fund your care by investing a certain amount each month into stocks, bonds or mutual funds, consider whether your investments will have enough time to grow to pay for care. Also consider what would happen if the value of your investments tumbled during a market downturn just as you needed to tap those funds for care. And put any plan to self-fund care in writing so your family doesn’t have to guess what funds you want to use to pay for care.
If you have very limited assets and income, you might be eligible for Medicaid. This government program will pay for care in skilled nursing facilities and at home, but typically won’t cover care in an assisted living facility. It is possible to spend down assets to qualify for Medicaid, but it’s best to work with an attorney who specializes in Medicaid planning.
Other options for paying for care can include a reverse mortgage and annuities. To figure out which strategy is best for you, consider working with a financial planner who specializes in long-term care planning.
If you’re here, you’re already thinking about how to take care of your family in case the worst should happen. Think of long-term care as a way to help your family in case the near-worst should happen. It’s not pleasant to think about, but you know what is? The peace of mind that comes from making a plan that can help your loved ones even when you’re not able to help them.
For more information about Long Term Care call JCT Insurance Agency at (626)354-2000 or email firstname.lastname@example.org